Columbia Threadneedle Investments outlines structural flaws in traditional municipal bond indices and presents a more flexible, active approach to navigating interest rate and credit risk in a fragmented market. It challenges passive exposure, noting yields fell from 11.5% to 0.58% over decades, raising questions about risk concentration and income sustainability.
A Smarter Solution To Municipal Investing
Columbia Threadneedle Investments
Catherine Stienstra
Research
8 Pages
Key Takeaways
Index Construction Bias: Traditional benchmarks overweight high-quality debt, contributing to lower yields and exposing investors to duration risk that can exceed 5–7 years in typical index profiles.
Yield Compression Reality: AAA municipal yields declined from 11.5% in 1981 to 0.58% in 2020, highlighting how falling rates have reshaped income expectations and future return potential.
Strategic Flexibility Advantage: Active approaches can allocate across sectors and credit tiers, potentially improving diversification by accessing thousands of issuers versus narrow index inclusion of only a subset.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
